Recent articles in newspapers and other news publications and comments at the recent Compressed Natural Gas (CNG) Conference in Baton Rouge indicate that a growing number of people are beginning to think that CNG is a panacea for our ailing economy and oil and gas industry. Examining technical and economic realities, however, produces little to support this optimism.

The Present Picture

The supporters of CNG vehicles state that the economics have long justified and continue to justify the conversion of at least all fleet vehicles to CNG. Yet, the gas utility industry itself has converted only about 5% of its fleet to CNG and has a long way to go in setting an example for others to follow.¹ Experience indicates that when the advantages and economics for something are as wondrous as indicated by many CNG proponents, then incentives, subsidies, or legal mandates are not needed. Approximately 30,000 vehicles in the U.S. are CNG fueled.¹ This represents only 0.017% of the 181 million registered cars, trucks, and buses in the country, of which 139 million are automobiles. (There are approximately 2.8 million registered cars, trucks, and buses in Louisiana, 1.9 million of which are automobiles.)² These facts indicate that the CNG motor fuel proponents have a lot of convincing to do.

Selecting the Fleet

Mandates to convert arbitrary percentages of fleet vehicles to CNG without examining specific vehicular types and use patterns is dangerous and can be costly and counterproductive. Careful study is required to determine what is the "right fleet" to convert or the right part of a fleet to convert to CNG. As aptly stated in the September 1989 issue of American Gas, "The cost of converting a vehicle to run on natural gas, now about $2000, is roughly the same whether the vehicle is a gasoline hungry behemoth or a penurious putt-putt."³ A heavy gasoline (or diesel) guzzling delivery van driven two or three hundred miles a day mostly in a city and returned at the end of each day to a central garage for refueling is an ideal target for conversion. On the other hand, a compact car driven an average of 300 miles a week would not be a good choice, since far less fuel savings are achieved to offset the same $2000 conversion costs, not to mention the cost of installing and operating the CNG refueling facility. Additionally, if the compact car, or any vehicle, is driven mostly on the highway outside of the range of the CNG refueling facility, it will have to run on gasoline, or diesel much of the time anyway.

Decisions Based on Facts

Currently, the Division of Administration requires the purchase of compact cars whenever possible for use in the State (i.e., government) fleet. Just a few years ago, the State was being highly criticized because it didn't even know how many motor vehicles it had or where they all were. Hopefully the State has a complete and accurate inventory today. Before bills are passed to require an arbitrary requirement to be CNG fueled, the State needs to complete a comprehensive technical inventory of State vehicles by type, size, use characteristics, mileage driven, areas driven, etc., to assess what vehicles would even fall into the category of being appropriate for CNG fueling. Then it should be determined where refueling stations would need to be located, what size refueling facilities would be required, how refueling logistics would be handled, etc. After these steps, it would be essential to ascertain the costs involved and the economic return for the most appropriate level of CNG implementation, based on life cycle cost of equipment and long term fuel price trends.

Comparing Fuel Costs

The foremost reason anyone would prudently contemplate converting to CNG is economics. In weighing gasoline, for example, against CNG, the two largest areas of potential cost savings are fuel savings from different combustion efficiencies and different fuel prices. Examining fuel costs first, the two fuels must be compared on an equal basis. Often, published figures make such comparisons as the retail price of gasoline at full service stations with all motor fuel taxes included and industrial bunnertip prices of gas with no motor fuel tax (or no CNG permit cost) included, or city gate prices of gas with no tax, and with no capital charges for the refueling facility.

Base Gasoline Price

There is no question that natural gas is cheaper than refined petroleum fuels. Natural gas has historically been priced at a discount relative to liquid hydrocarbons on the basis of fuel value. For example, natural gas would have to be priced at $3.79 per million BTU at the wellhead to be priced at the same value as crude oil recently selling in the $22 per barrel range. Contrast this with wellhead gas prices in the $2 per million BTU range lately. Turning to gasoline, deducting $0.091 per gallon federal motor fuel tax, $0.16 per gallon state motor fuel tax, and 3% state sales tax, the price of unleaded regular gasoline was recently about $0.735 per gallon at retail self-service outlets and in the range of $0.568 per gallon to wholesale end use purchasers.⁴ These prices translate to $5.88 per million BTU and $4.54 per million BTU, respectively.

Base Natural Gas Price

Concurring with the American Gas Association, CNG refueling facilities on the scale of small service stations would have natural gas costs consistent with commercial gas rates.⁵ In October 1989 (the latest data available), the average price of natural gas sold to commercial customers was $5.35 per million BTU in Louisiana and $4.47 per million BTU nationally.⁶ These prices are equivalent to untaxed gasoline at $0.669 per gallon and $0.559 per gallon, respectively. The U.S. Department of Energy (DOE) projects the average 1990 U.S. price for gas in the commercial sector to be $4.70 per million BTU (equivalent to gasoline at $0.589 per gallon) based on an average field acquisition cost of $1.75 per million BTU for natural gas. ⁷ These are the prices of gas delivered to commercial purchasers before capital and operating costs are added for the purchase and operation of compressors, storage tanks, compressor fuel, etc., needed for a CNG refueling facility.

Projected Natural Gas, Gasoline and Diesel Prices

Savings to be realized by the differences in price between natural gas and other fuels must take into account the changes in prices over the life of the investment of the CNG equipment. The following is the base case forecast of energy prices from the U.S. Department of Energy's 1990 long term forecast.⁷ The column for Louisiana commercial gas prices was computed from the DOE's U.S. commercial average gas prices using the January through October 1989 ratio of Louisiana commercial gas price to the U.S average.

U.S. Department of Energy Base Case
Projected Annual Average Energy Prices ⁷
(1989$, Excluding Taxes)

Natural Gas						Retail Petroleum Products
	U.S.	U.S. Commercial		LA Commercial*		U.S. Unleaded Reg.		U.S.
	Wellhead		$/Equiv.		$/Equiv.	Gasoline*		Diesel*
Year	$/MMBTU	$/MMBTU	Gasoline Gal.	$/MMBTU	Gasoline Gal.	$MMBTU	$/Gal.	$MMBTU	$/GAL.
1990	1.75	4.70	0.59	5.06	0.63	5.52	0.69	4.05	0.59
1995	2.18	5.17	0.65	5.57	0.70	6.08	0.76	4.94	0.72
2000	3.13	6.13	0.77	6.60	0.83	7.60	0.95	6.18	0.90
2005	4.23	7.22	0.90	7.78	0.97	8.48	1.06	7.14	1.04
2010	5.46	8.45	1.06	9.10	1.14	9.19	1.15	7.97	1.16

*Calculated from Reference 7

MMBTU = million British Thermal Units

Motor Fuel Taxes

Since the federal motor fuel tax does not presently apply to natural gas vehicles, it can be argued that these federal taxes should be included in the prices of gasoline and diesel fuel. The federal taxes are $0.091 per gallon for gasoline and $0.151 for diesel fuel. This changes the 1990 prices in the preceding table to $0.781 per gallon ($6.24/MMBTU) for gasoline and $0.741 per gallon ($5.09/MMBTU) for diesel. It could also be argued that selective taxation of one fuel and not another is a distortion that does not fairly reflect the true costs of the fuels.

It should be kept in mind that the reason the federal government does not have a motor fuel tax in place for natural gas is because historically natural gas has not been used as a motor fuel to any extent. If use of natural gas as a motor fuel expands, it is reasonable to assume that at some point in time, the federal motor fuel tax will be extended to natural gas. Most states already have mechanisms such as CNG vehicle permits to tax the use of natural gas as a motor fuel.

CNG Refueling Facility Cost

For natural gas to be utilized in a vehicle, it must first be compressed and stored in the vehicle's high pressure tanks (i.e., 2500-3000 pounds per square inch). A typical cost of a small central fleet CNG compressor facility that can refuel 20 to 40 CNG vehicles per day is about $50,000. This capital cost translates to $1.84/MMBTU or $0.23 per equivalent gasoline gallon if this facility has a 20 year life, has a capital recovery factor of 15%, and refuels 40 vehicles driven 20,000 miles per year, at an average efficiency of 25 miles per gallon. A larger scale public refueling facility capable of refueling vehicles throughout the day could refuel 736 of these vehicles per year for an investment of $297,700⁸ ($0.65/MMBTU or $0.08 per equivalent gasoline gallon). To this must be added compression operation and maintenance costs of approximately $0.70/MMBTU ($0.09 per equivalent gasoline gallon or $0.10 per equivalent diesel gallon).

Fuel Efficiency

Results on fuel efficiency (miles per equivalent gallon) for CNG vehicles are not conclusive. Different tests and studies have varied results ranging from losses to gains in fuel efficiency relative to gasoline or diesel for vehicles converted to CNG. One problem with CNG vehicles is the fuel required to haul around the added weight of the heavy high pressure tanks. The weight of a modern lightweight CNG tank that can hold the equivalent of 5 gallons of gasoline is more than 150 pounds.¹ Most vehicles have room for only two or three tanks. Tanks providing the equivalent capacity of only 15 gallons of gasoline would add nearly 500 pounds to the car and consume more than half the trunk space. This does not include the weight of any gasoline also carried in a dual fuel vehicle. For a vehicle in the weight range of 2500 to 3500 pounds, an additional 300 pounds entails a fuel economy penalty of about 6%

Part of the problem with assessing fuel economy with CNG vehicles is the number of variables between different test programs, such as

-Vehicle size - compact car, full size car, van; light, medium, or heavy truck, bus

-Vehicle use - city vs. highway driving, passenger transportation, delivery use, hauling, industrial uses, etc.

-Fuel options - dedicated CNG vs. dual fuel CNG/gasoline or CNG/diesel, amount of use on each switchable fuel

-Engine design - designed for CNG vs. converted from gasoline or diesel, carburetor vs. fuel injection

-Etc.

Basically, a vehicle designed for and dedicated to CNG use only should be expected to have a greater efficiency than a gasoline or diesel fueled engine, with an efficiency improvement in the range of 5 to 15% relative to a gasoline engine. Results from converted dual fueled vehicles have shown a hodgepodge of results. Some have shown poorer fuel economy on both switchable fuels, poorer economy on CNG only, poorer economy on gasoline only, same economy on both fuels, better economy on CNG, etc. The safest premise is to assume no change in fuel economy for a converted dual fuel vehicle.

Economics of CNG Conversion

As the preceding discussion indicates, determining the economics of CNG conversion is not a simple process. A few simplifying assumptions can be made, though, to place the economics in perspective. Consider the conversion of a fleet of 40 new gasoline engine passenger automobiles to dual CNG/gasoline fuel. Assume a conversion cost of $2000 per vehicle, no change in fuel economy from an average of 25 miles per gallon on gasoline, and that two 150 pound CNG tanks are installed in each vehicle. Use the U.S. commercial gas price, which is lower than that in Louisiana, and use U.S. average retail unleaded gasoline prices. The following comparison can be made based on 1990 prices:

1990 CNG Passenger Car Fuel Cost Comparison*
($ Per Equivalent Gasoline Gallon)

	Gasoline	CNG Conversion
	Case 1	Case 2 Purchase Small 40 Vehicle Refueling Facility	Case 3 use Larger Public Refueling Facility
Fuel Cost (excluding tax)	$0.69	0.59	0.59
Federal Motor Fuel Tax	0.09	0.0	0.0
CNG Tank Weight Penalty	0.0	0.04	0.04
CNG Compression Facility Capital Costs	0.0	0.23	0.08
Operation & Maintenance	0.0	0.09	0.09
Total Costs	$0.78	$0.95	$0.80

		Case 4	Case 5
15% Efficiency Improvement for Dedicated CNG Fuel	0.0	-0.09	-0.09
Total Costs	$0.78	0.86	$0.71

*Excluding conversion cost of $2000 per vehicle.

As the preceding table illustrates in Cases 2, 3, and 4, conversion of a 40 vehicle passenger car fleet would cost more than using gasoline even if there were no cost of conversion. Only in Case 5 when a 15% fuel efficiency improvement is allowed for CNG use is the total cost of CNG fuel less than gasoline. Even in Case 5, for a vehicle driven 20,000 miles per year, it would take 15 years to recover the $2000 conversion cost of each vehicle.

Conclusion

Since the mass of the vehicles in the State government motor vehicle fleet are passenger automobile types, this analysis indicates that the economics do not likely exist for converting the state fleet to CNG. Similarly, it can be concluded that if fuel economics are the driving force for conversion to CNG, only a very limited number of heavy, fuel inefficient, high use fleet vehicles would be economic targets for CNG conversion anywhere in the U.S. unless natural gas for CNG use could be universally purchased at a steep discount from commercial gas rates.

It is, thus, difficult to conceive of CNG stimulating the one TCF (trillion cubic foot) per year new demand for natural gas quoted by one proponent. Even the American Gas Association which is an ardent (perhaps to the extent of being over zealous) proponent of CNG uses only one half of the number of CNG vehicles on which the one TCF estimate is based, which is an arbitrary number of vehicles proposed to be converted to alternate fuels (e.g., methanol, ethanol, CNG, etc.) in the Bush Administration's Clean Air Act revision of 1989.¹⁰

Cited References

1. Cannon, James S., "Natural Gas and Methanol Vehicles: The Drive for Clean Air," Energy Resources Committee Report, The Interstate Oil and Gas Compact and Committee Bulletin: Oklahoma City, Ok; December 1988; p. 22.

2. Statistical Abstract of the United States - 1989, 109th edition, U.S. Department of Commerce, Bureau of the Census: Washington, D.C.; January 1989, p. 595.

3. Kelly, Timothy, "Fleet Conversion Means Business," American Gas, American Gas Association: Arlington, Va.; September 1989.

4. Petroleum Marketing Monthly, DOE/EIA-0380, U.S. Department of Energy, Energy Information Administration: Washington, D.C.

5. "Natural Gas Prices for the Vehicle Market," Executive Gas Industry Statistic, American Gas Association: Arlington, Va.; December 1989.

6. Natural Gas Monthly, DOE/EIA-0130(89/11), U.S. Department of Energy, Energy Information Administration: Washington, D.C.; November 1989, published January 1990.

7. Annual Energy Outlook 1990 with Projections to 2010, U.S. Department of Energy, Energy Information Administration: Washington, D.C., January 1990.

8. An Analysis of the Economic and Environmental Effects of Natural Gas as an Alternative Fuel, EA 1989-10, American Gas Association: Arlington, Va.; December 15, 1989.

9. Gaseous Fuels for Automotive Engines, U.S. Department of Energy, Office of Transportation Program, Alternative Fuels Utilization Branch: Washington, D.C.; July 1980.

10. A Side-by-Side Comparison of Studies Concerning Alternate Vehicle Fuels, Issue Brief 1989- American Gas Association: Arlington, VA.; September 15, 1989.

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